U.S. presidents have faced, and overcome, heavy debt loads in the past.
Source: Library of Congress Prints and Photographs Division
The “fiscal cliff,” a combination of
tax increases and severe spending cuts scheduled to kick in next
year, is a product of multiple deceptions. Both the expiration
date on the Bush-era tax cuts and the trillion-dollar
“sequesters” that were enacted as part of last year’s debt-
ceiling deal were designed to cover up an overarching problem:
the country’s out-of-control debt.
The U.S. government today owes $16.05 trillion to
bondholders and creditors, more than $51,000 for every American.
This debt is already larger than the country’s annual economic
output and threatens to cripple the economy for generations.
In its 235-year history, only twice has the country run up
this big a tab: during the Civil War and World War II. Each
time, though, the U.S. managed to dig its way back, regain its
credit and emerge as the world’s leading economy. Both episodes
offer lessons for today’s predicament.
To finance the Civil War, President Abraham Lincoln
Treasury Department borrowed heavily. Public debt exploded
between 1861 and 1866 to more than $2.75 billion from $90
million. Lincoln’s government also cheapened the currency
through inflation, issuing more than $500 million in fiat paper
dollars, or “greenbacks.”
By the time Robert E. Lee surrendered to Ulysses S. Grant
at Appomattox Court House in April 1865, those greenbacks had
lost two-thirds of their value (measured against gold), leaving
the country with oceans of debt and a debased currency.
To regain solvency, four things had to happen. First, the
government paid down the debt. Starting in 1867, the U.S.
every month sold gold and bought bonds, slowly paying
off creditors and strengthening the dollar. By 1878, it had
lowered the debt by almost 25 percent and the country was able
to return to its traditional gold standard. No more fiat paper.
Second, Congress kept up revenues with high taxes, in the
form of protective import tariffs. These tariffs helped local
businesses and allowed the government to afford programs like
Reconstruction, farm homesteads, railroad land grants and
Third, the economy grew. The great industrial boom of the
Gilded Age, a product of many causes -- wartime stimulus,
corporate consolidation, government subsidies, immigration, new
technologies and so on -- quickly made the lingering debt a
shrinking portion of a booming economy.
Finally, the country showed patience in sticking with this
plan over two decades and under three presidents: Andrew Johnson, Grant and Rutherford B. Hayes. The electorate didn’t
shift course every Election Day.
Like the Civil War, World War II also forced the government
to borrow heavily. The debt grew to more than $270 billion in
1946 from $50 billion in 1940, topping 120 percent of the
country’s annual gross domestic product -- the highest level in
Again, the first step for bouncing back was to control
debt. Between 1947 and 1960, the government ran seven annual
and seven small deficits, keeping nominal debt
At the same time, taxes were set at levels sufficient to
pay for, among other things, the Cold War
, the interstate
highway system and continuing New Deal programs.
And once again, the economy soared. Real GDP more than
doubled during those years and continued to increase through the
Finally, patience. Over 15 years, presidents as diverse as
, Dwight Eisenhower and John F. Kennedy
all stuck to
the plan. By the time Kennedy was assassinated in 1963, the
World War II debt had shrunk to less than 50 percent of GDP. By
1981, it would bottom at 32 percent.
The history is clear. With four things -- income, growth,
discipline and patience -- the U.S. has climbed out of financial
holes similar to the one it now faces. Since Election Day,
President Barack Obama
and House Speaker John Boehner
signaled the need for a bargain: cutting some $4 trillion in
debt over the next decade. That’s the very type of disciplined,
long-term plan that saved the country’s finances in the past.
(Kenneth D. Ackerman is the author of four books, including
“Boss Tweed: The Corrupt Pol Who Conceived the Soul of Modern
.” The opinions expressed are his own.)
To contact the writer of this post: Kenneth D. Ackerman at
To contact the editor responsible for this post: Timothy Lavin